The new 2020 Healthcare FSA contribution limit has been announced. Let’s take a look at the new regulations, how they’ve changed from last year, and the benefits of opening an FSA account versus an HSA account.
2020 Healthcare FSA contribution limit
For 2020, the IRS raised the FSA contribution cap to $2,750, an additional $50 more than the previous year. This new law applies to all health FSAs, which includes those accounts restricted to individual coverage, such as vision or dental services.
Benefits of an FSA account
There are several benefits to having an FSA account. First, contributions made to an FSA are not subject to taxes, making it potentially more lucrative option for staff members who would rather not pay their healthcare expenses out of pocket using their own taxed income.
FSA funds can be used to cover medical expenses, including deductibles, copays, over the counter medications, prescriptions, and other related medical costs.
FSAs are also advantageous for families. An employee who contributes to a company-sponsored FSA can use the funds for themselves, their spouse or children. In the case of dependent care, it can help shoulder some of the burdens of high medical expenses. By being able to use pre-tax dollars for family co-pays, prescriptions or even things like orthodontics, the employee saves a great deal of money over the course of a year.
Differences between an FSA and an HSA
A Flexible Spending Account (FSA) is much different than a Health Savings Account (HSA). Since employees can usually only enroll in one of these options, it’s important to understand which one is best for your specific needs.
FSAs provide for tax-free reimbursement for healthcare expenses up to the amount that the employee has contributed for the year (up to the $2,750 limit).
HSA funds, on the other hand, use pre-tax payroll deductions to in turn lower gross incomes and annual tax burdens. Money contributed to an HSA can be used for healthcare expenses, as well as investments like stocks or bonds. There are different contribution limits as well, with FSAs limited to $2,750 and HSAs limited to $3,550.
Another point to consider between FSAs and HSAs is that FSAs are employer-owned, and accounts are non-transferable if the employee decides to leave the company. HSAs are not owned by the employer, so no matter where you work, your HSA goes with you. The same applies if you enter retirement.
Unless you meet the requirement for these exceptions, you’ll likely lose your FSA funds if they’re not used during the calendar year, while HSA funds generally roll over every year. Understanding these key differences can help you better decide which type of account is more beneficial based on your current job situation and your healthcare needs.